Orange close to exit in Austria and Switzerland

3 tipped to buy France Telecom's Austrian unit, while 12 bidders line up for the Swiss subsidiary

France Telecom is exiting several central European businesses as it shifts its expansion plans to emerging markets, with its Orange Switzerland and Orange Austria units both close to sale. This contrasts with the policy of its increasingly close partner Deutsche Telekom, which is more cautious about new territories but wishes to consolidate its strength in central and eastern Europe. The complementary geographic strategies point to even closer cooperation between the two giants, which recently kicked off a wide-ranging alliance on joint procurement and services, and which have entirely merged their operations in the UK and Poland.

In Austria, Hutchison Whampoa's 3 Austria is in final negotiations to acquire the local Orange unit, according to newspaper reports. Investment bank Merrill Lynch is concluding due diligence processes, and 3 is expected to pay between €750m and €1.1bn for the larger cellco, significantly shrinking the gap between its own size and that of Telekom Austria A1 and T-Mobile.

The deal would also reduce the number of mobile operators to three. This could arouse regulatory intervention in Austria, although many analysts believe more than three cellcos are unsustainable in all but the largest European markets. Several countries have already seen consolidation, as in the UK, though others, like France, are opening up to new competitors (Free Mobile). The deal will also have to go through EU antitrust approval processes, which could take six months to conclude.

Both the other Austrian cellcos were reported to be interested in Orange, though A1 issued a statement earlier in the month, denying that it was preparing a bid. Orange Austria is currently 65% owned by the private equity firm Mid Europa Partners and 35% by France Telecom.

Over the border in Switzerland, 12 firms will take part in a second round of bids to acquire the local Orange subsidiary. One is billionaire French entrepreneur Xavier Niel, founder of the Iliad quad play operator, which is poised to go live with 3G services via its Free Mobile unit. Niel has vowed to shake up the French mobile sector with aggressively priced tariffs, and may be seeking to do the same in Switzerland. However, he is reported to be making the Swiss bid independently of his existing telecom interests, working in partnership with Goldman Sachs. According to Bloomberg, this would be a 50:50 deal with the investment bank's private equity unit.

France Telecom's CEO Stephane Richard told Reuters last week that, despite the Eurozone debt crisis, he expected to achieve close to the target price for Orange Switzerland. "I don't see any signs to the contrary," he said, despite shareholder concerns that the deal will be scuppered by the financial upheaval, at least for this year. Some think FT has allowed all 12 bidders to go through to the second round in order to increase price competition and to avoid the larger players banding together to push down the price.